5 Benefits of Investing in Sovereign Gold Bonds

The stock market has peaked this year due to the economic impact of the epidemic, prompting most investors to find ways to hedge their portfolios. During this timeframe, the asset which gained popularity is gold. If you are considering investing in gold, but are unsure of how to get started, then there is a quick guide to get acquainted with gold investment in India.

Gold has long been recognized as a valuable investment for many reasons, and these benefits have been widely discussed over the years. Most people know that gold prices have risen significantly and that investing in gold provides excellent portfolio diversification, a hedge against inflation, and a safeguard during times of economic and political uncertainty. However, what’s often overlooked is the importance of choosing the right forms and types of gold to invest in. As with any tangible asset, the potential profit depends not only on the asset’s value but also on how easily it can be sold. If you purchase a type of gold that lacks demand, the rise in gold spot prices won’t matter—you may struggle to sell it at a profitable price. Sovereign Gold Bond offers a number of convincing reasons to invest.

Sovereign gold bonds have a long-standing history, enjoying a very good reputation and a well-established secondary market to trade. This makes them incredibly easy to sell globally. Their widespread circulation over the years ensures that buyers have plenty of options, unlike coins like the UK Britannia, which has only been around for about 20 years, typically offering buyers the choice of only newer coins.

As smaller coins, Sovereigns provide the opportunity to own a greater number and variety compared to 1-ounce coins. This variety is beneficial for creating a well-balanced gold portfolio. Since approximately four Sovereigns make up one ounce of gold, they allow for greater divisibility, enabling investors to liquidate smaller portions of their holdings more easily. This flexibility can be especially advantageous, as it is often easier to find buyers for coins worth around 200 than for those valued at 900.

One of the most attractive features of Sovereign gold bonds is their tax-free status after maturity. Classified as investment gold due to their 22-carat composition, Sovereigns bonds are exempt from any form of tax after maturity. This contrasts with other forms of gold, such as jewelry and gold nuggets, as well as other precious metals like silver and platinum, which are subject GST.

Additionally, Sovereign bonds are free from Capital Gains Tax (CGT) for UK residents. This provides a significant advantage over foreign coins like the Krugerrand and Maple Leaf, where profits may be taxed up to 28%. With Sovereigns, investors retain 100% of their profits, making them an attractive and tax-efficient investment option.

The case for buying Sovereigns is compelling, but it’s crucial to ensure you’re getting the best value for your investment. As an investor, it’s generally advisable to avoid purchasing proof Sovereigns. These often come with a 15-30% premium over bullion coins, yet you’re unlikely to recover that premium when it’s time to sell. Proof coins are only worth considering if you can acquire them near the bullion price or if you’re a collector with a specific interest in them.

When deciding between full Sovereigns and smaller denominations like half or quarter Sovereigns, it’s usually better to opt for a full Sovereign if your budget allows. Full Sovereigns offer better value for money and are more cost-effective in terms of the gold content relative to the price.

Smaller fractional coins, like half and quarter Sovereigns, typically come with higher premiums, meaning you get less gold for your money. Additionally, these smaller coins tend to have lower demand due to their diminutive size. On the other hand, double Sovereigns (2 Sovereigns) and quintuple Sovereigns (5 Sovereigns) can be excellent options, offering better value and greater appeal. Lastly, it’s important to consider the age of the Sovereign you purchase. Fortunately, this is a straightforward rule to follow. In current market the brand new Sovereign bonds remain expensive. While these are beautifully finished one can pay 5% or more on top of second hand prices. Like buying a car, the coin that will not be the latest mint year within a year, so will represent bad value.

If you are planning to include gold as an asset class in your investment portfolio, we hope that this article helped to get a better hold on gold investment. Keep in mind, any investment must be made after finalizing your financial goals, investment horizon and your risk tolerance. If you need more clarification, learn more about gold investing and talk to an investment advisor.